Usually at the start of a new year, we try to make predictions of what lies ahead; comparisons of previous predictions show we get it wrong more often than not. Instead, this year I’d like to highlight five things that will definitely influence payments this year.
One thing that’s become clear is that although many of the predictions are aimed at banks, they themselves have no real plans for innovation at all. Most banks are concerned with dealing with the fallout from PPI, Packaged Bank Accounts and other mis-selling problems, and getting their infrastructures and platforms into a good state. What you hear little of if you follow the trade news is any major sales of any new applications, platforms or innovations. It appears that the banks are too busy fixing to innovate, and this situation will continue (I fear) for a while yet.
What we do see is a new industry being established of companies who are feeding off the banks and providing services and products that appear to disintermediate the banks, but in reality don’t. 2016 will see further attempts to feed off the banks’ core business, and offer customers products and services that make transaction initiation easier, but still require the bank to be part of the chain. The banks, as I’ve said before, will never relinquish control of their core business while the regulators hold them ultimately responsible for fraud.
PSD2 has now been published and it contains a number of radical proposals that have yet to be fully understood. The main one is the proposal to allow access to bank accounts by third-party applications. The expectation is that this will throw up a plethora of new products that can be run from mobile phones, accessed by smart cards and wearables. It’s interesting that, although the intention of PSD2 was to open up access to allow information to be more freely available, the real repercussions haven’t yet materialized, but they will as those innovative geeks start working. Start looking at innovation sites such as Level39, and journals such as Hongkiat and Wired for early warning of where innovators are heading.
Payment Systems Regulator (PSR)
The PSR has started to show its teeth and has initiated a number of workshops and studies to look at the various ways competition (especially) can be improved to provide better core payments services and products in the UK market for customers. Its remit has no boundaries, and everything is up for grabs, so there will be a fight between the suppliers and third-party processors, and the banks, who as I said earlier will fight hard to keep control of their core business as long as they’re held liable for fraud.
If you haven’t signed up to the various groups and collateral that the PSR offers, as well as its newsletter, you’re missing an opportunity to become involved and influence what’s going on.
2016 is the year that the PSR will conduct most of its studies into the UK payments market, and what it decides will heavily influence your job whatever it is.
Innovation is a hard thing to follow because it pops up all over the place, yet has a strong influence on what we do in payments. 2016 will see a number of companies that have been incubated by the industry bring their products to market. Disintermediation of the banks is the key objective, but for reasons already given, this will be hard. Yet, the biggest influence will be felt in corporate payments, as this is an area long overdue for change (but with few innovations to date). All the major carriers, the payments processors and software companies are looking at ways to influence the corporate payments market.
Again, watch the press and follow the conferences, because 2016 will see at least one new entrant of significant size and position into the corporate payments market. And let’s not forget our old friend bitcoin and its potential influence.
I really mean customer relationships. All the major banks tell us that they’re losing money from their branch banking services and are closing branches all over the UK. But, as I wrote in another article, the core service of a bank as far as the man in the street is concerned is the bank account. Emanating from the bank account are a variety of opportunities that banks can explore to cement their relationships with customers. Bank branches that remain can be supported by a number of ‘partners’ – such as the Post Office, WH Smith, and even the supermarkets – to offer customers insurance, mortgages, financial advice, trading in stocks and shares, to name but a few.
In 2016, a number of banks will bring out new relationship models that bind customers to a particular bank. Mis-selling only showed that bankers were terrible salesman, not that they were bad at product and service development. PPI for the right people was the right product, and care should have been exercised to ensure that only the best service was given to customers instead of the view that they were cash cows.
The big development in 2016 will be the emergence and growth of the challenger banks. Many ‘institutions’ like the credit unions are looking at ways to offer targeted banking services and products to a specific customer base. This year will see a growth in the number of applications for banking licenses, and more ‘Bank of Dave’ banks will appear. Like most industries, there’s an attraction to community-focused companies as opposed to global ones, so I expect to see a growth of community-based financial service providers in the next couple of years. These providers will see that investing £1m locally is preferable to £10m nationally as the impact on local economies can be immediate.
So there you have it: five influences that will impact payments in 2016. Some will have a major impact, some not so strong, but they are the things that all payments professionals need to be following and thinking about, and that will change the face of payments in the UK for the better.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.